Moral Hazard

Another first rate video from the Econ 101 series of the Center for Freedom and Prosperity. This video exlores the concept of moral hazard in economics. A moral hazard occurs in economics when one of the parties to a transaction is insulated from bad effects if the transaction goes south. This will cause that party to behave more recklessly than if the full impact of the failure of the transaction were felt. Government bailouts of course establish a precedent that if a big business suffers a loss, that the government might bail it out. No doubt many of our major financial institutions have learned the lesson that if a financial fiasco is large enough, Uncle Sucker will come to the rescue, and put the taxpayers on the hook for another few trillion that they can’t repay. Moral hazard indeed!